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Value Added Tax surcharge instead of LBT may bankrupt Nagpur Municipal Corporation
June, 27th 2014

The state government's proposal to replace Local Body Tax (LBT) by 3% surcharge on Value Added Tax (VAT) has Nagpur Municipal Corporation (NMC) worried. Replacement of octroi by LBT had already messed up the city's finances, but now VAT will practically make NMC bankrupt, feel civic officials.

In spite of knowing this, the BJP-ruled NMC is opposing octroi. When Narendra Borkar, standing committee chairman, was asked by chief minister Prithviraj Chavan about his views on LBT, he said that the government should do whatever was in the best interests of traders.

Now, when the government is proposing a VAT surcharge, Borkar says that NMC will suffer a loss of Rs 500 crore this fiscal. Borkar said that if octroi was continued, NMC would have raked in Rs 550 crore. "However, as per VAT collection projections, the 3% surcharge comes to only Rs 51 crore," he said.

Borkar himself admitted that municipal officers and office-bearers of Mumbai, Pune and Pimpri-Chinchwad had made it clear to the CM that they were in favour of octroi and LBT respectively. When asked about his stand, Borkar said that it was his party's stand and he could not go against it.

The standing panel chief revealed that most of the small traders wanted octroi back, but their leaders were hell bent on opposing both octroi and LBT to the detriment of the common man.

In 2012-13, NMC had collected Rs 486 crore through octroi but LBT collection dropped to Rs 279 crore in 2013-14, a loss of over Rs 200 crore. NMC is having problems in paying instalments of Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and has little money for development works.

The traders are clamouring for VAT and many politicians are supporting them due to the fact that only around 16,000 traders in the state pay VAT. So, most of the small and middle-level traders will be out of the tax net.

The traders have been claiming that they want scrapping of octroi and LBT in the interest of consumers, and it would bring down the prices of goods. Strangely, not many consumer organizations have demanded scrapping of these taxes.

When state BJP president Devendra Fadnavis was asked about VAT surcharge, he said that he was yet to study the issue.

Taxing situation

* VAT surcharge only in favour of small and middle-level traders

* Scrapping of LBT will reduce municipal revenue and make local bodies bankrupt

* Politicians working for traders' interest at the cost of common man

* Octroi is only tax that can revive local body finances

* Traders have no explanation for the opposition to octroi

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